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Credit card rates and consumer search
Author(s) -
Berlin Mitchell,
Mester Loretta J.
Publication year - 2003
Publication title -
review of financial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.347
H-Index - 41
eISSN - 1873-5924
pISSN - 1058-3300
DOI - 10.1016/j.rfe.2003.06.001
Subject(s) - credit card , loan , economics , search cost , chargeback , credit card interest , actuarial science , monetary economics , business , finance , microeconomics , payment
Credit card rates have tended to be higher and stickier than other loan rates but have fallen over the past decade. Some argue this decline is due to a reduction in consumer search costs. Our evidence suggests search costs are not the best explanation for the decline. We test whether consumer search models explained credit card pricing in the 1980s when search costs were thought to be significant. We find that the distributions of rates were inconsistent with those derived from many models of search. Proposals for stricter disclosure requirements may have less effect on equilibrium credit card rates than intended.